I'm not sure how you got stuck there, it's rather obvious, but regardless, it says rather lame insults at you during the battle, daring you to top them. One up him and use Insult on it, rather than debuff it with berserk it makes it cry and rain and the Cloud Demon becomes a lot smaller. It will have a lot less defense, so you can just wail on him. It will grow back to it's normal size a few times through-out the battle, so remember to save some MP for using Insult again.
Oh yeah, I'm a little stuck too, if anyone has figured out how to tell the difference between the Good Souls and Bad Souls in hell? I don't have a clue and there's too many to just brute force it. Thanks!